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US regulators to visit Hong Kong for new audit checks – sources

Photo Credit: Reuters Photo Credit: Reuters
Photo Credit: Reuters Photo Credit: Reuters

Sources said the U.S. audit agency would begin a new round of audits of Chinese businesses’ auditors in Hong Kong next week as part of a deal with Beijing to avert delistings from the New York Nasdaq.

One source stated the U.S. Public Company Accounting Oversight Board (PCAOB) had chosen Hong Kong and mainland China branches of EY, Deloitte, PwC, and other audit firms for the examination.

The second source stated the China Securities Regulatory Commission (CSRC) and Ministry of Finance (MOF) would send Chinese officials to Hong Kong to help with the examination.

Last year, U.S. authorities spent weeks assessing Hong Kong auditors’ work before obtaining full inspection access in December, lessening the immediate possibility that approximately 200 Chinese businesses may be delisted from U.S. stock exchanges.

After settling a longstanding disagreement over auditing compliance of U.S.-listed Chinese corporations last August, that visit occurred. China has historically resisted foreign audits of local accounting companies, claiming national security concerns.

According to unnamed sources, authorities from both sides would follow a methodology similar to last year’s onsite inspection in Hong Kong for future evaluations.

The PCAOB, which regulates registered public accounting firms worldwide, declined to comment on ongoing inspections.

Reuters’ inquiries were unanswered by the Chinese Securities Regulatory Commission, the Ministry of Finance, EY, Deloitte, and PwC.

After an onsite examination in Hong Kong, the PCAOB announced in December that it had full access to inspect and probe New York-listed Chinese firms.

The agency then stated the teams planned to begin regular inspections and investigations in China in early 2023 and beyond.

It cautioned that obstructing inspections might impact Chinese enterprises’ U.S. listings.

Jessica Zhou, a partner at Hong Kong law firm White & Case, said the PCAOB inspects auditing firms yearly if they produce audit opinions for more than 100 issuers or every three years otherwise.

“In light of the PCAOB’s recent, successful completion of its inspections of selected enterprises in Hong Kong,” she added, alluding to last year’s arrangement.

The PCAOB stated that it inspected KPMG’s mainland and PwC’s Hong Kong branches last year.

The PCAOB said inspection reports would be finalized and released this year after employees found “many possible issues” last year.

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